Gen Y: Home for the Holidays, and Much Longer

According to Pew Research, college grads borrowed a lot more this decade than a generation ago. When they come home for the holidays this year, it might be to stay for a whole lot longer. It also means the first-time home buyer patterns are changing once again in our country.Graduates who received a bachelor’s degree in 2008 borrowed 50% more (in inflation-adjusted dollars) than their counterparts who graduated in 1996, according to a November 2010 report by Pew Research Center. The average loan in 2008 was more than $23,000, compared to only $17,000 a decade ago.

This is serious news for the housing industry, which for two years tried (unsuccessfully) to stabilize the market by flooding it with “tax credits” for first time buyers. Today, lenders are more cautious than ever, considering unemployment amongst college graduates is typically higher than other segments of the population. Emerging with more debt upon graduation will skew the typical house buying patterns of younger buyers even further.

College borrowing is a mixed blessing. On the one hand, access to student credit may be an important factor facilitating college access for lower-income and non-traditional students. On the other hand, individuals with large student debt relative to their incomes may have difficulty making monthly payments. (Pew Research)

As we’ve argued for years, the current housing recession is as much about changing consumer demographics as it is about the financial crisis. Here’s a rare opportunity where both attitudes and finances come together to shift a huge portion of the population away from home ownership for perhaps ten to fifteen years.

In the past, Baby Boomers purchased homes after high school or college, having entered the workforce, getting married and having children. Most importantly, they left their parents’ home having taken on relatively little debt. Nearly thirty years later, the exact opposite is happening. Generation Y spent lots for college, starting by sucking out their parents’ home equity first. They then borrowed the rest. They return home with fewer job opportunities (or stagnant wages) and unbalanced credit profiles. Their parents also have nothing left with which to “gift” them their down-payments.

None of which might seem to bad to the twenty-somethings, as they are generationally content to live at home with mom and dad well into their thirties.

Unfortunately, it means that an entire generation of customers has been “time shifted” down the curve of real estate consumption. With more debt and little interest, let alone income, to move out of the family home, it doesn’t look like Gen Y will be saving the housing industry any time soon.